Aarti Industries Ltd Q3 FY23 Earnings Conference Call Insights

Key highlights from Aarti Industries Ltd (AARTIIND) Q3 FY23 Earnings Concall

Management Update:

• [00:04:16] AARTIIND said demand for textile products was impacted in the quarter, but added that it expects recovery in 1H24.

Q&A Highlights:

• [00:09:24] Rohit Nagraj from Centrum Broking asked about QonQ GM being flat considering value added products contribution being higher. Rajendra Gogri MD replied that it’s due to discretionary being pressured on the dye side, while other sides didn’t see much impact in 3Q23.

• [00:12:03] Vivek Rajamani of Morgan Stanley asked about the demand trends in key end segments. Rajendra Gogri MD replied that the textile industry is facing a slowdown due to the global demand slow down caused by high inflation. Also now, recessionary trends are seen in other segments such as the auto industry.

• [00:13:13] Vivek Rajamani of Morgan Stanley enquired how the company’s revenue exposure will change once all ongoing projects are commissioned.  Rajendra Gogri MD answered that segment exposure will be around 50:50 with current ongoing expansion.  However, going forward there will be some increase in pharma and agro during FY25.

• [00:14:07] Niteen Dharmawat from Aurum asked about the pending capex, including maintenance capex. Rajendra Gogri MD answered that in FY23 AARTIIND spent around INR840 crores and expected spend is INR1,100-1,200 crores. And for next two years, it’s INR3,000 crores.

• [00:14:40] Niteen Dharmawat from Aurum enquired about the revenue target at current prices. Rajendra Gogri MD answered that the company is targeting about INR1,700 crore EBITDA by FY25.

• [00:15:27] Archit Joshi with B&K Securities asked about the volume growth in base business if it’s sustainable. Rajendra Gogri MD replied that the company expects the volume growth to happen. However, some products might have to put into non-regular markets.

• [00:18:41] Sagar Sanghavi from JP Morgan asked if the FY27 guidance of bottom line increase of 3-4x still remains. Rajendra Gogri MD answered that long term guidance the company should be able to achieve.

• [00:20:56] Surya Narayan Patra of PhillipCapital enquired about correction in crude price and freight cost, if it’s already seen in revenue and product prices. Rajendra Gogri MD answered that for domestic it gets passed on a month to month basis. And export it gets passed with a quarterly lag.

• [00:27:32] Surya Narayan Patra with PhillipCapital asked about the cumulative R&D spend for a year as a percentage to sales. Rajendra Gogri MD said that it will be about 1%.

• [00:31:22] Abhijit Akella from Kotak Securities asked about the capex incurred on chlorotoluenes and asset upgradation initiatives. Rajendra Gogri MD answered that chlorotoluenes spending will start from FY24. The major expense till now has been on the existing product lines.

• [00:34:57] Rohan Gupta from Nuvama asked about any upward revision of EBITDA guidance for FY23. Rajendra Gogri MD said that due to global slowdown, the company is not revising guidance. Overall AARTIIND will try to reshuffle the products to meet the guidelines of about INR1,100 crores.

• [00:40:34] Rohan Gupta from Nuvama enquired about the debt level at year end. Rajendra Gogri MD replied that debt level should be a bit lower than what was on the peak part, about INR2,600-2,700 crore. Some part of it is due to reduction on commodity prices and freight cost resulting in reduction of working capital.

• [00:42:49] Ankur Periwal at Axis Capital asked about volume growth from a 3-5 year perspective. Rajendra Gogri MD said that the company is expecting 40-50% volume growth.

• [00:52:35] Nitin Agarwal of DAM Capital asked about the growth contribution from current products and newer products. Rajendra Gogri MD answered that until FY25 the contribution will be more from the current product line. In FY25, the new product line will be the first year, so there won’t be any significant EBITDA coming from new products.